Walker, in the matter of ZYX Learning Centres Limited (Formerly ABC Learning Centres Limited) (In Liquidation) (Receivers and Managers Appointed)
[2011] FCA 462
•14 April 2011
FEDERAL COURT OF AUSTRALIA
Walker, in the matter of ZYX Learning Centres Limited (Formerly ABC Learning Centres Limited) (In Liquidation) (Receivers and Managers Appointed) [2011] FCA 462
Citation: Walker, in the matter of ZYX Learning Centres Limited (Formerly ABC Learning Centres Limited) (In Liquidation) (Receivers and Managers Appointed) [2011] FCA 462 Parties: PETER WALKER AND GREGORY MOLONEY (IN THEIR CAPACITY AS LIQUIDATORS OF ZYX LEARNING CENTRES LIMITED (FORMERLY ABC LEARNING CENTRES LIMITED) (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 AND ZYX LEARNING CENTRES LIMITED (FORMERLY ABC LEARNING CENTRES LIMITED) (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664 File number: NSD 424 of 2011 Judge: EMMETT J Date of judgment: 14 April 2011 Legislation: Corporations Act 2001 (Cth) ss 420C, 477(2), 477(2B), 479, 500(2), 506, 511, 674 Date of hearing: 14 April 2011 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 23 Counsel for the Plaintiffs: Mr M. Oakes SC Solicitor for the Plaintiffs: Kemp Strang
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 424 of 2011
IN THE MATTER OF ZYX LEARNING CENTRES LIMITED (FORMERLY ABC LEARNING CENTRES LIMITED) (IN LIQUIDATION) (RECIVERS AND MANAGERS APPOINTED)
PETER WALKER AND GREGORY MOLONEY (IN THEIR CAPACITY AS LIQUIDATORS OF ZYX LEARNING CENTRES LIMITED (FORMERLY ABC LEARNING CENTRES LIMITED) (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664
First PlaintiffZYX LEARNING CENTRES LIMITED (FORMERLY ABC LEARNING CENTRES LIMITED) (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664
Second Plaintiff
JUDGE:
EMMETT J
DATE OF ORDER:
14 APRIL 2011
WHERE MADE:
SYDNEY
THE COURT:
1.DIRECTS, pursuant to section 511(1) of the Corporations Act 2001 (Cth) (the Act), that the First Plaintiffs as Liquidators of the Second Plaintiff, for and on behalf of the Second Plaintiff, are justified:
(a) in entering into an agreement which is in, or substantially to the effect of, the document that is Confidential Exhibit 1 in the proceeding; and
(b) in performing their obligations under an agreement which is in, or substantially to the effect of, the document that is Confidential Exhibit 1; and
(c) in causing the Second Plaintiff to perform its obligations under an agreement which is in, or substantially to the effect of, the document that is Confidential Exhibit 1.
2.ORDERS, pursuant to section 477(2B) of the Act, that the making by the First Plaintiffs as Liquidators for and on behalf of the Second Plaintiff, of an agreement which is in, or substantially to the effect of, the document that is Confidential Exhibit 1, be approved.
3.ORDERS, pursuant to section 50 of the Federal Court of Australia Act1976 (Cth), that Confidential Exhibit 1 be kept in the Court file in this proceeding in a sealed envelope marked “Confidential – Not to be opened by any person without further order of a Judge of this Court and giving the Plaintiffs, care of their Solicitors, Kemp Strang, at least 48 hours’ prior notice of any application seeking an order”, or alternatively, that the exhibits in the proceeding be returned.
4.ORDERS that costs of this application be costs and expenses in the winding up of the Second Plaintiff.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 424 of 2011
IN THE MATTER OF ZYX LEARNING CENTRES LIMITED (FORMERLY ABC LEARNING CENTRES LIMITED) (IN LIQUIDATION) (RECIVERS AND MANAGERS APPOINTED)
PETER WALKER AND GREGORY MOLONEY (IN THEIR CAPACITY AS LIQUIDATORS OF ZYX LEARNING CENTRES LIMITED (FORMERLY ABC LEARNING CENTRES LIMITED) (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664
First PlaintiffZYX LEARNING CENTRES LIMITED (FORMERLY ABC LEARNING CENTRES LIMITED) (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) ACN 079 736 664
Second Plaintiff
JUDGE:
EMMETT J
DATE:
14 APRIL 2011
PLACE:
SYDNEY
REASONS FOR JUDGMENT
I have before me an application for orders under s 477(2B) and s 511(1) of the Corporations Act 2001 (Cth) (the Corporations Act). The first plaintiffs, Messrs Peter Walker and Gregory Moloney (the Liquidators), are the joint liquidators of the second plaintiff, ZYX Learning Centres Limited, formerly ABC Learning Centres Limited (ABC). On 6 November 2008, the Liquidators were appointed joint and several administrators of the group of companies, of which ABC is the holding company (the ABC Group).
On the same day as the Liquidators were appointed as administrators, Messrs Chris Honey, John Cronin and Murray Smith (the Receivers) were appointed receivers and managers of the ABC group of companies, and took control of the assets of all of the companies in the ABC group. From the date of their appointment, the Receivers have been in control of the business affairs and property of each of the companies in the ABC group. The consequence is that the Liquidators have had no personal knowledge of the day-to-day conduct of the business of the companies in the ABC group, other than what has been conveyed to them by the Receivers.
On 2 June 2010, the second meeting of creditors for each of the companies in the ABC group was held. The creditors resolved that each of the companies should be wound up. By reason of those resolutions, the Liquidators became liquidators of ABC. Since their appointment, the Liquidators have, pursuant to s 420C of the Corporations Act, consented to the Receivers carrying on the business of ABC and its subsidiaries in their capacity as receivers, but also as agent for the companies.
ABC was established in August 1997 to develop and operate child care centres. It was listed on the Australian Stock Exchange in March 2001. By November 2008, the ABC Group owned approximately 1,045 child care centres in Australia, and processed approximately 100,000 child care transactions each week. The ABC Group had approximately 15,000 full-time employees in Australia, and contracted with a significant number of part-time employees.
The ABC Group was funded in Australia and New Zealand, in part, by a banking syndicate comprising mostly Australian banks, but including some foreign banks (the Banking Syndicate). The loans made by the Banking Syndicate were secured over all of the assets of the ABC Group. The total amount secured is approximately $1 billion. The Receivers have taken steps to sell the bulk of the assets of the ABC Group. Nevertheless, they remain in control of the remaining assets. The Liquidators have no funds available to them. However, the Receivers have released funds to them from time to time, in their capacity both as administrators and as liquidators, to meet certain costs and expenses incurred by them, including applications made to extend the convening period in respect of the administration.
In the course of the administration, the Liquidators as administrators secured limited funding from IMF Australia Limited (IMF) to permit the preparation of a preliminary report on solvency of ABC as at 25 June 2008. The committee of creditors of the ABC Group approved their entering into a funding agreement with IMF for the purposes of preparing that report. On 22 October 2009, the Court made orders that the Liquidators, then administrators, were justified in entering into an agreement with IMF in relation to the funding of proposed public examinations. The Liquidators agreed, upon appropriate terms as to confidentiality, to provide to IMF access to documents in their possession, and to documents that were produced to the Court in relation to the public examinations.
At present, no decision has been made by the Liquidators to proceed with any recovery action as a result of the information acquired pursuant to the public examinations. However, it is possible that IMF may fund further investigations by the Liquidators. If any recovery actions are commenced, IMF may fund those actions. In that case, IMF would be entitled to be paid fees, on commercial terms, if there was a recovery by the Liquidators.
On 22 December 2010, the Liquidators were served with an originating process dated 17 December 2010, supporting affidavits, and a notice to produce. The originating process was an application by JC International Investments Pty Limited (JC International) for leave, pursuant to s 500(2) of the Corporations Act, to commence civil proceedings against ABC. The proceeding proposed by JC International is a class action claiming loss and damage allegedly suffered as a result of contravention by ABC of the continuous disclosure obligations imposed by s 674 of the Corporations Act. The notice to produce requires the production of insurance policies held by ABC providing indemnity in respect of the claims contemplated by the proceeding for which leave to proceed is sought.
ABC in fact is a party to a relevant insurance policy. The insurer under that policy has informed the Liquidators that it wishes to assume control of the defence of the proposed proceeding, if leave to proceed is granted. The policy in question does not confer such a right on the insurer. Rather the policy requires ABC to defend any claims that would be the subject of any indemnity provided by the policy. The Liquidators are therefore faced with a dilemma. On the one hand, they have insufficient funds available to them to be in a position to pay for the defence of the claims foreshadowed in the proposed proceeding. On the other hand, there is a contractual obligation under the policy to defend the claims made in any such proceeding.
The Liquidators, obviously enough, wish to preserve the indemnity under the insurance policy as asset to the extent that that is possible. They also wish to ensure that the defence of the proceeding that is contemplated by JC International be conducted as efficiently and cost-effectively as possible. Under the terms of the insurance policy, ABC may have a contractual entitlement to require the insurer to reimburse costs incurred in defending the proceeding, were the liquidators to assume the conduct of the defence on behalf of ABC. Any costs incurred would require the prior written consent of the insurer. Against that background, the Liquidators entered into negotiations with the insurer with a view to arranging that the insurer would assume conduct of any proceeding foreshadowed by JC International.
The Liquidators and the insurer have reached a provisional understanding as to the terms upon which such an arrangement may be made. The Liquidators consider that a proceeding such as that foreshadowed by JC International would be a more cost-efficient way of determining the claims of applicants who might be members of the class of claimants under the proceeding, than conducting individual assessments of proofs of debt. Some 1,972 claimants have lodged proofs of debt for voting purposes, although there has not yet been any formal call for proofs of debt, since the Liquidators have no funds available from which any dividend might be declared.
The Liquidators seek a direction, pursuant to s 511 of the Corporations Act, that they would be justified in entering into the proposed agreement with the insurer, and in causing ABC to perform its obligations under the proposed agreement. They also ask for orders, pursuant to s 477(2B) of the Corporations Act, that the making of the proposed agreement be approved.
Section 511 of the Corporations Act, which is contained in Division 4 of Part 5.5, dealing with voluntary winding up generally, provides that the liquidator of a company may apply to the Court to determine any question arising in the winding up of the company, or to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court. Section 506, which is also in Division 4, provides that the liquidator in a voluntary winding up may exercise all the powers that the Corporations Act confers on a liquidator in a winding up in insolvency or by the Court. Section 479 of the Corporations Act, which is in Division 2 of Part 5.4B, dealing with Court-appointed liquidators, provides that the liquidator of a company may apply to the Court for directions in relation to any particular matter arising under the winding up.
Section 477 is also in Division 2 of Part 5.4B. By s 477(2), a liquidator may, subject to the other provisions of that section, defend any legal proceeding on behalf of the company. In addition, a liquidator may appoint an agent to do any business that the liquidator is unable to do, or that it is unreasonable to expect the liquidator to do, in person. Finally, the liquidator may also do all such other things as are necessary for winding up the affairs of the company and distributing its property. However, under s 477(2B), except with the approval of the Court or the approval of the committee of inspection or a resolution of the creditors, the liquidator of a company must not enter into an agreement on the company’s behalf if the term of the agreement may end, or obligations of a party to the agreement may be discharged by performance according to the terms of the agreement, more than three months after the agreement is entered into. Clearly enough, the proposed agreement with the insurer would fall within s 477(2B), assuming that it would be within the power of the liquidators to enter into such an agreement with the insurer.
I shall summarise the main provisions of the proposed agreement with the insurer, to which both the Liquidators and ABC will be party. The insurer will take over the complete conduct and control of the defence of the proceeding proposed by JC International. However, the insurer must obtain the prior written consent of the Liquidators to the entry of any final judgment or other earlier resolution for any amount that exceeds the then remaining quantum of cover under the policy. The insurer will be entitled to take steps to resolve or settle the proposed proceeding, at such time and on such terms as it sees fit. However, the Liquidators are to be afforded a reasonable opportunity to associate in any such settlement if any such settlement may impose an obligation upon ABC greater than the then remaining quantum of cover under the policy. Any proposed settlement must be the subject of consent by the Liquidators, such consent not to be unreasonably withheld. Further, the insurer will obtain the consent of the liquidators to any resolution of the proceeding that does not release ABC from any and all claims that are the subject of the proceeding. The Liquidators agree to provide the insurer with all information, assistance and co-operation that the insurer may reasonably require in the conduct of the defence of the proposed proceeding, and the insurer agrees to provide the Liquidators with reports as to the progress of the proceeding.
Under the proposed agreement, the insurer will advance, as defence costs within the meaning of the policy, the Liquidators’ reasonable costs and disbursements incurred in assisting the insurer with the defence of the proceeding, and in complying with the terms of the proposed agreement. The insurer, however, will remain liable to pay its own costs of its lawyers and counsel. In addition, the insurer will advance to the Liquidators money sufficient to satisfy any adverse costs order that might be made personally against the Liquidators, on the basis that such an advance constitutes defence costs under the policy.
Under the proposed agreement, the Liquidators retain the right to terminate the agreement on 28 days notice. Further, the insurer has the right to withdraw from the defence of the proceeding upon 28 days notice.
It is significant that the Liquidators do not delegate any authority to the insurer beyond the existing cover of the policy. In addition, the insurer has an obligation to outlay its own money if the proposed proceeding is to be settled, although the obligation or right to outlay funds is limited to the amount of the indemnity provided by the policy.
As I have said, the Liquidators have no funds, and it would be totally impracticable for them to defend the proposed proceeding. Further, it would be impracticable for them to call for and deal with proofs of debt in respect of the claims that might be asserted in the proposed proceeding. On the other hand, if the proposed agreement with the insurer is entered into by the Liquidators and ABC, it will provide a mechanism whereby the question of the liability of ABC that is alleged in the proposed proceeding can be resolved without expense to the Liquidators.
IMF is a funder of the claims foreshadowed in the proposed proceeding. The precise involvement of IMF in those claims, as well as in the claims that the Liquidators may be entitled to bring, is not entirely clear. However, that of itself is not a matter of present relevance. The Banking Syndicate have asserted that its securities over the assets of the ABC Group would take priority over any claim by unsecured creditors, such as the claimants in the proposed proceeding. Specifically, they have asserted that their securities would attend to any entitlement to indemnity under the policy. The merit or otherwise of those assertions is not presently before the Court; nor is the question of whether or not leave to proceed should be granted to JC International. They are matters for another occasion.
The only question before the Court is whether the Liquidators would be justified in entering into the proposed agreement and giving effect to its terms. I am satisfied that entry into an agreement along the lines that I have briefly described is necessary for the winding up of the affairs of ABC, and that it would be unreasonable to expect the Liquidators to conduct the defence of the proceeding. I am satisfied that s 477(2)(k) and s 477(2)(m) authorise the Liquidator to enter into the proposed agreement with the insurer.
It is, of course, not for the Court to make a commercial decision on behalf of the Liquidators. Nevertheless, I am satisfied that the Liquidators would be justified in entering into the proposed agreement with the insurer, and that the agreement should be approved, notwithstanding that obligations under the agreement may be performed more than three months after it is entered into. I am also satisfied that it is appropriate that the costs of this application be the Liquidators’ costs in the winding up of ABC.
The terms of the proposed agreement between the Liquidators and the insurer are confidential, for reasons that have been explained by the Liquidators. In those circumstances, I am satisfied that the terms of the proposed agreement should be kept confidential.
I certify that the preceding twenty three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate:
Dated: 9 May 2011
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